Friday, November 25, 2011

FYI: 6th Cir Upholds Striking Class Claims Prior to Motion for Class Certification

The U.S. Court of Appeals for the Sixth Circuit recently upheld the lower
court's order granting a motion to strike the plaintiffs' class action
claims, as those claims would have required the court to analyze each
class member's claim under the law of his home state, a task potentially
involving 50 different states. The court also held that the district
court's ruling on class certification, made prior to the plaintiffs having
filed a motion for class certification, was not premature.

A copy of the opinion is available at:

Defendants offered a healthcare program, which, in exchange for a
membership fee, provided healthcare at reduced rates to program members
through the program's network of healthcare providers. After joining the
program, Plaintiffs-Appellants found that certain healthcare providers
listed in the network's informational materials did not participate in the
program in their area.

Plaintiffs sued in federal court claiming in part that Defendants engaged
in deceptive advertising in violation of Ohio's consumer protection law,
because the program failed to deliver the advertised healthcare providers
and was promoted as "free," even though the program charged a
nonrefundable registration fee along with a monthly membership fee. The
Plaintiffs also sought to represent a nationwide class of all the people
who had joined the program. The district court exercised jurisdiction
pursuant to the Class Action Fairness Act of 2005, which grants
jurisdiction over class actions in which the amount in controversy exceeds
$5 million and the parties are minimally diverse. See 28 U.S.C. §

One of the defendants filed a motion to dismiss, which the court granted,
because that defendant was too far removed from the alleged transactions.
The second defendant, responsible for marketing the healthcare program
around the country, filed a motion to strike the class allegations before
the Plaintiffs had conducted extensive discovery and filed a motion to
certify the class.

The district court granted the motion to strike, because Ohio's
choice-of-law rules would have required the court to analyze each class
member's claim under the law of his home state, a task potentially
involving 50 different states. The court reasoned that such an analysis
would render a class action "unmanageable" and would "dwarf" the
commonality of fact required in class actions. The district court then
dismissed for lack of subject matter jurisdiction, because without the
class allegations, the amount in controversy of Plaintiffs' surviving
claims did not exceed the $75,000 jurisdictional threshold. Plaintiffs
appealed, and the Sixth Circuit affirmed.

Focusing on the motion to strike the class allegations, the Court of
Appeals examined the requirements for obtaining class certification under
Rule 23 of the Federal Rules of Civil Procedure (Rule 23). The Sixth
Circuit held that the district court properly concluded that Rule
23(b)(3)'s predominance requirement was not satisfied. The Court of
Appeals noted that "each class member's claim would be governed by the law
of the State in which he made the challenged purchase, and the differences
between the consumer-protection laws of the many affected States would
cast a long shadow over any common issues of fact plaintiffs might

Thus, the Sixth Circuit affirmed lower court's order striking the class
claim, as the claims of individual class members failed to satisfy the
requirement that common issues of law or fact predominate among the
proposed nationwide class.

The Court set forth three reasons in support of the district court's
conclusion. First, the various factors Ohio courts consider under its
choice-of-law rules indicated that the potential class members' individual
claims would be governed by the consumer-protection laws of each potential
class members' home State. Specifically, following the Ohio Supreme
Court's choice-of-law analysis in Morgan v. Biro Mfg. Co., 474 N.E.2d 286
(Ohio 1984), the appellate court noted that as the State with the
strongest interest in regulating deceptive or fraudulent conduct is the
State where the consumers are harmed by such conduct, "no common legal
issues favor a class-action approach" in this case.

Second, citing the United States Supreme Court's opinion in Wal-Mart
Stores, Inc. v. Dukes, 564 U.S. __, 131 S. Ct. 2541 (2011), the Court of
Appeals noted that the operation of the healthcare program varied from
state to state and thereby resulted in distinct individualized injuries to
the potential class members, and that program advertisements in different
states reflected the different requirements of each state's
consumer-protection laws. As the court remarked,"[w]here and when
featured providers offered discounts is a prototypical factual issue that
will vary from place to place and from region to region." Thus, the
differences in the nature of claims, injuries and defenses precluded the
existence of a predominant factual overlap sufficient to compensate for
the lack of a common legal standard.

Third, the court also noted that other circuit courts have similarly
concluded that a single nationwide class action is unmanageable and
impractical where claims would have to be adjudicated under the laws of
so many different jurisdictions.

In affirming the lower court's order striking the class claims, the
appellate court rejected the Plaintiffs' argument that had they been given
more time to conduct discovery, they would have been able to offer
persuasive arguments for class certification. Noting that Rule 23
requires class certification to be decided "[a]t an early practicable
time" in the litigation and that the motion to strike the class
allegations served as the catalyst for doing so, the Court concluded that
the timing of the district court's disposition of the class certification
issue -- before the Plaintiffs filed a motion for certification -- was not

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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